PEC - Volume One

The Political Economy of Resource Misallocation in the Energy Sector: A Case Study of South Carolina’s V. C. Summer Nuclear Project

Jody W. Lipford

Pages: 44 – 75 | First Published: August 2018

Abstract

At the dawn of the twenty-first century, federal- and state-government policy makers attempted to bring about a “nuclear renaissance” that would provide abundant, clean, carbon dioxide–free electricity for decades. Nonetheless, these policies—and in some cases the reversals of these policies—brought incentives that combined with inadequate and asymmetric information in the private sector and changes in relative prices in energy markets to misallocate over $9 billion of resources in South Carolina, when two of the state’s largest electric utilities, South Carolina Electric & Gas and Santee Cooper, halted construction of two nuclear reactors at the V. C. Summer nuclear site, nearly a decade after their initial application to the Nuclear Regulatory Commission. This case study provides insight into the scale of resource misallocation that can occur when government influences private sector decisions and may be of interest to policy makers, business leaders, investors, consumers, and the general public.